Experts: Detroit bankruptcy filing unlikely to be played out in N.J.

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July 22, 2013 at 12:26 PM

Detroit

Decades of declines in Detroit came to a head last week, as the city became the largest municipality ever to file for Chapter 9 bankruptcy protection. And while experts say New Jersey municipalities have troubles of their own, it's not likely such a scenario will be played out in the Garden State.

Eric Perkins, a partner specializing in bankruptcy law at McElroy, Deutsch, Mulvaney & Carpenter, said Detroit's filing will be closely watched, but it won't necessarily prompt a string of similar filings.

"When you have a bank of this magnitude that has this many complexities, and depending on the success and the outcome, you might very well see other municipalities following suit," he said. But "it's not likely to be the place of first choice to solve any of their real problems."

Still, the Motor City shares some troubling similarities with some of the Garden State's largest cities.

Cities like Newark, Jersey City and Camden have seen dramatic losses in population from their historic highs, said David Crapo, counsel in the Newark office of Gibbons P.C. And industry has followed suit, thought not to the dramatic levels seen in Detroit.

"That's been a big problem in Detroit. When the people move out, so do the taxes — and, of course, the automotive industry has pretty much moved out of the city of Detroit, and not a whole lot has moved back in," Crapo said.

"We have not hit that kind of rock bottom," he said. "What we do have is, what little industry you did have in Newark, Paterson, Trenton and Camden, Jersey City, is gone and you don't really have anything that's replaced it."

Another major issue is the state's inability to cover on pensions and other retiree benefits, Crapo said. This problem is hardly unique to New Jersey, but the state's inability to pay those debts will need to be addressed as those pensions and benefits come due, he said.

There's also the tremendous expense of a Chapter 9 filing, which results in millions of dollars in fees, Crapo said. Paying those fees could present a major issue should any New Jersey cities file for bankruptcy, since the state's major municipalities are hurting for cash.